for people who care about the West

Deregulation talk shakes up Arizona energy scene

The Arizona energy fight that everyone's been yapping about lately is the effort by the state's largest investor-owned utility, Arizona Public Service, to tweak state regulations regarding how the utility compensates homeowners for energy they produce from rooftop solar panels. That show – over the decidedly un-sexy-sounding issue of net metering – has a wacky cast, from Barry Goldwater Jr. to solar industry executives to Tea Party members, often fighting for sides that would surprise.

Yet a potentially far more important issue, though less titillating and maybe even harder to untangle, is throwing the Arizona energy world into a bit of a tiff lately: deregulation. This spring, the Arizona Corporation Commission, the state's utility regulator and a body that's been wielding a lot of power lately, asked the state's utilities to give their thoughts on opening up the state's electricity market to competition as has been done in Pennsylvania and Texas.

It was just a question, and a rather vague one at that, but folks are already lining up for a fight. APS called it, "the most significant action by the ACC in more than a decade." The utility, which would potentially lose its captive customer base under deregulation, is against the idea, as is Tucson Electric Power and the Salt River Project, the state's two other big electric utilities. Carrying the opposition's water is the Arizona Power Consumers Coalition, which counts the Arizona Association of Realtors, the Sedona Tea Party, the Arizona Charter Schools Association and the Arizona Diamondbacks (seriously) as members. They essentially argue that the current system provides stability and low rates, so don't mess with it.

Leading the charge in favor of deregulation for obvious free market-type reasons are groups like the Arizona state chapter of the ultra-right, Koch-funded Americans for Prosperity, and the Goldwater Institute. Competition, they say, would bring prices down and provide more choice, just as breaking up telecommunications monopolies has done. They're joined by a crew of big businesses (ie large electricity gulpers that could get a good deal from a competitive market) – from mining giant Freeport McMoran to Intel to WalMart – under the umbrella of the Arizonans for Electric Choice and Competition.

Deregulation is certainly not an either/or proposition. It's up to the ACC to determine what form it might take. But it could be good for renewable energy. Customers could, in theory, choose power suppliers that would supply them with 100 percent renewables; currently, they're basically trapped into buying a very coal-heavy energy mix from APS, SRP or TEP. And, in all likelihood, deregulation would include the creation of an independent system operator to operate the Arizona grid, much in the same way it's done in California. That can help with so-called geographic smoothing of wind and solar, which suffer from intermittency, thereby allowing more renewables into the grid.

Arizona actually deregulated once already, or tried to, back in the late 1990s and early aughts, when the nation as a whole was moving in that direction. California was one of the leaders, and therefore one of the first to get burned by deregulation. Bad operators gamed the system. Enron shipped power out of state, then back in, to get by state price caps. And so on. The experiment crashed in California, and other states got cold feet, or ran into their own complications, and for the most part halted deregulation.

Under that old Arizona deregulation plan, utilities would have been forced to divest from their power plants and other assets (though there would be ways for them to recapture stranded costs). That possibility has already shaken up the Arizona energy scene, with ripples going into New Mexico and California. After the ACC brought up deregulation, APS postponed indefinitely a plan to buy two Southern California Edison-owned units of the Four Corners Power Plant in northwestern New Mexico and shut down the plant's three other units. And that has stopped the Navajo Nation from going ahead with a possible purchase of the Navajo Mine, which supplies Four Corners, from BHP Billiton.

That deal, the fate of the Four Corners Power Plant, and the Arizona energy scene in general all hang on the ACC deregulation decision, which could be handed down as early as this fall. We'll keep you informed.

Jonathan Thompson is a senior editor at High Country News. Follow him on Twitter @jonnypeace.